Student Loan Interest Rate to Double As Deadline Passes Without Action
As Congress left Friday for a weeklong vacation for the Independence Day holiday, a July 1 deadline passed without congressional action on student loan interest rates . New subsidized federal Stafford loans issued after that date will incur a new rate of 6.8%, up from the current 3.4% students pay. Time still exists to fix the rate increase, however, as most students don't sign their loan paperwork until early August. Without legislation to reverse the increase, some 7 million students will see rates on their subsidized loans double at a time when student loan debt has reached more than $1 trillion and more and more economists are saying the massive student loan debt problem is becoming a drag on the economy.
Several proposals have been floated to extend the deadline or fix the problem, but none has gained traction. Senate Majority Leader Harry Reid (D-N.V.) and Senate Democrats shot down a proposal from Joe Manchin (D-W.Va.) that would have fixed all new loans to the 10-year U.S. Treasury bond rate plus 1.85% (with graduate student loans being set at 3.4% above the bond rate). Most Democrats rejected this legislation because it lacked a hard cap on the rate to protect students against market fluctuations. Sen. Dick Durbin (D-Ill.) said student groups rejected the compromise bill, suggesting the long-term results of that bill could lead to interest rates higher than 6.8%.
In recent months, President Obama and the House Republicans also proposed legislation to address the deadline, but neither got enough support to move forward. The Republican bill was heavily focused on deficit reduction , Reid said in opposing it. Democratic Sens. Tom Harkin of Iowa and Jack Reed of Rhode Island proposed a one-year extension of the current 3.4% rate, but a vote on that legislation won't come until after the break.
